To preface this post, I should probably state that it's not strictly political in nature. For those of you who read my blog regularly, you know that I don't often write about politics, and I don't strictly define myself as a Democrat OR a Republican. However, I do think and hope there's a bit of self-preservation in all of us. Call it instinct. This issue I will write about here has the potential to further damage our industry, so I felt compelled to air it for discussion/action. My ideas are my own, and I don't claim any level of economic expertise other than my business degree and my own experience running a small business since 1996. Now that we have that out of the way, read on...
Not long ago, President Obama gave his State of the Union address. At one point, he was talking about regulating the banking industry and the rest of the financial sector. There was an irony that I saw there, when it occurred to me that in their zeal to do something about the financial mess which they likely helped to create, Congress is now looking at the possibility of passing measures that could further damage the housing and mortgage industries.
Over-regulation probably won't solve our problems, at least not as I see it.
So, what am I referring to here, anyway?
Well, I had lunch with a good friend of mine not too long ago, and he brought to my attention that a number of Senate Democrats recently sent a letter to the Federal Reserve Chairman, Ben Bernanke (on Christmas Eve, no less), urging him to adopt new regulations which would ban yield spread premiums for mortgage brokers. The letter was headed up by Sen. Merkley, and it was co-signed by about 18 other Democrats. To read it yourself, visit https://www.namb.org/images/namb/GovernmentAffairs/Senate%20Letter%20to%20Fed-YSP%2012242009.pdf. The National Association of Mortgage Brokers has been working overtime to keep their members informed on this.
If you aren't familiar with yield spread premiums, or YSP's, here's one definition from Wikipedia, "the money or rebate paid to a mortgage broker for giving a borrower a higher interest rate on a loan in exchange for lower up front costs." This means that YSPs can often help to defray costs for buyers. I won't claim to understand all of the requirements therein, and it won't really matter for the purposes of this post.
I did take some time to read through the actual regulations that they are considering instituting, and some of the language there was disturbing to me:
To address the concerns related to loan originator compensation,
the Board proposes to prohibit payments to loan originators that are
based on the loan's terms and conditions. This prohibition would not
apply to payments that consumers make directly to loan originators.
The Board solicits comment on an alternative that would allow loan
originators to receive payments that are based on the principal loan
amount, which is a common practice today.
If a consumer directly pays the loan originator, the proposal would prohibit the loan originator
from also receiving compensation from any other party in connection
with that transaction.
Since the Board is soliciting comment on this, I would be happy to oblige.
Why does this proposal bother me as a real estate broker?
Well, it seems to me that this hinders the free enterprise system as it exists now. By removing YSPs completely, you will effectively remove yet another viable option for consumers who are short on cash. Over the past few years, we've all watched helplessly as mortgage options for Joe Average have dwindled. Truthfully, the loan approval process was too loose before. I get that, believe me. There were people who got approved for loans who were truly risky propositions. However, I've seen the pendulum swing too far in the other direction now. I have told many friends and potential clients that roughly 1/2 of the marketplace was vaporized with the tightening of the credit markets and tougher loan guidelines. For every 10 home buyers that I could assist before, I now have 5 or 6. I hear the same thing from my colleagues across the country.
The subprime mortgage crisis was certainly part of the problem, and it did seem like all you really needed was the ability to fog a mirror and you could buy a home. That being said, the removal of subprime, most zero-down programs, stated-income loan products for self-employed individuals has made being a Realtor or a mortgage broker a very tough job indeed.
None of us could ever have foreseen how different our world could become in a couple of short years. Fear has replaced reason when it comes to the world of banking. Melodramatic? Not really. I am trying to feed a family of six with my income. Thankfully, I've survived some difficult years, and, along with most people I speak with these days, I am hoping to see a sincere turnaround. This proposal won't help.
Another concern that I saw in the language is that this lays the groundwork for the government to step into the real estate arena as well, perhaps prohibiting OUR commission from being tied to the sales price of a property. Again, I see this as inhibiting the free market.
On the surface, I see how this could be perceived as helping consumers, but the more likely scenario is that mortgage brokers will now have two paths to choose from:
- Charge a lot more directly to consumers to originate loans, since they can't get paid by banks, or
- Go out of business
Clearly, neither of these outcomes would be beneficial for any of us.
In fairness, there are some other parts of the proposal that make sense to me, mainly with regard to consumer disclosures, but this portion would be foolish. You can see the whole thing here if you're interested: http://edocket.access.gpo.gov/2009/E9-18119.htm
It's my understanding that the Federal Reserve already has the authority to monitor and regulate mortgage brokers, so any legislative action would be overkill and probably just plain unnecessary.
From my own research, I was happy to see that this issue wasn't split strictly along party lines, unlike so many other things we hear about from Washington. Although none of the Republicans on the Senate Banking Committee signed the letter, I was pleasantly surprised to find that a handful of Democrats also abstained. Kudos to Johnson of South Dakota, Benett of Colorado, and Tester of Montana for not just toeing the party line here. I applaud the members of the committee who didn't sign this pressure letter. You can see a list of all the members here: http://en.wikipedia.org/wiki/United_States_Senate_Committee_on_Banking,_Housing,_and_Urban_Affairs
I'm hoping that the highly paid lobbyists for the financial institutions that actually caused the problem don't manage to shift the blame to the little guys. While there were certainly predatory lenders that played a part in creating the mortgage crisis, most of these people are just business owners who are trying to provide an honest service and get paid for their work.
If this bothers you as much as it does me, I would encourage you to contact the members of the committee and let them know, especially if any of them are in your home state.
I welcome your input. :)
UPDATED: Jeff Belonger wrote a post today that gives more detail on this matter, including the fact that it will affect mortgage brokers AND mortgage bankers. He also re-iterates the notion that consumers will end up with fewer choices, since brokers and bankers might not be able to charge enough to make loans worth their while:
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Way to much to read in this post, but I agree that they are taking one step forward and two steps backward. The financial pendulum needs to get back to dead center for a while! Thanks
Yes, the thing is, getting rid of YSP targets mortgage brokers only. It does not target the big banks, who get to characterize the money they make selling the loan on the secondary market as a separate, non-YSP event. Yes, taking away YSP from brokers will rid us of the dishonest ones. But it will also rid us of the good brokers who simply used the YSP to help a borrower qualify with less cash up front, or to get the borrower a lower rate than they would elsewhere. If YSP goes away, the unemployment rate is going to go up commensurately. One would think the President would try to avoid that, but he hasn't shown that tendency thus far. Thanks for the post.
Dave - I don't expect everyone to read the whole thing - thanks for your honesty. There was a lot more that I could have addressed here, including the stuff that Lisa mentioned in her comment. I intend to spread the word about what we in the real estate and mortgage industries feel about this move.
Lisa - Spot on! I had the same thought, and I almost included that in the post, but I decided not to make it even longer. I guess I addressed it at the end of my remarks. :)
A remedy that will kill the patient is not a good cure.
The yield spread premium issue has been bothering me. These fools (politicians) have no idea what they are talking about. The yield spread is the broker commission. If they take that away, then the brokers will have to charge origination and points to make money. Most of the time, I can make my commission while charging a rate that the consumer still cannot get if he or she went direct to that bank. Brokers are accessing wholesale rates. The par rate is not available to the consumer on a direct basis. So, let them take YSP away and see what happens. Will result in millions of loan officers collecting unemployment OR the consumer having to pay every time out of pocket for the broker commission.
Just reading your title, I was already bracing myself. OF COURSE Congress is doing more stupid stuff! Do you even need to ask? And OF COURSE the banks are trying yet again, to find a way into the real estate industry. They won't stop until they eventually find a way. We can't let our collective guard down for one minute!
Jason, I respectfully disagree. Just Google the words Yield Spread Premium and see what the conventional wisdom is about what has become this somewhat questionable practice. The intent and the actual practice of YSPs have diverged causing many consumers have been ripped off and mortgage brokers have been enriched. Now, I am not saying that all mortgage brokers are crooks. Legitimate practitioners are sometimes regulated due to the actions of the less-than-honest practitioners of their industry.
I have nothing against someone making an honest living but there is just too much opportunity for bad players to line their pockets at the public's expense. The argument that cash poor buyers need options to purchase homes has been replaced by buyers shouldn't buy houses they can't afford. I personally agree with the latter argument.
You also commented about realtor commissions being tied to the sale price of the property. This is a much more interesting topic for me. Maybe commissions shouldn't be tied to sale price. The effort of a real estate professional in marketing a $500,000 to a $750,000 home is essentially the same. Why should one be compensated more for doing the same work? I am not a proponent of a strict flat fee structure, but perhaps a deliverable and acheivement based compensation system would be more equitable to the consumer. I have to comply with the policies of my broker, just like everyone else. I have had conversations with them, though, about how we can deliver great value to our clients at a fair price, run a profitable enterprise, and beat the competition.
Lord knows, we real estate professionals are not overpaid by any stretch. I do think we sometimes charge too much for our services though.
I do agree with you and hope that the government doesn't regulate in this regard. It will be a great opportunity for progressive thinking real estate brokers to offer a very strong value proposition and change the game for the entire industry.
I enjoy your comments and our occasional interactions on other social networks. As always, I wish you the best.
Joe Sheehan
www.card.ly/jsheehan200
I don;t believe that this is an area that needs regulation ...
Featured in the Group "Whacked!!!"
Joe, consumers have been ripped off in every industry. However, the knee jerk reaction that you support to remove broker commissions makes about as much sense as taking guns away from cops because a few of them had itchy trigger fingers. Did you know that many banks sell those loans for three times what any broker could make on that loan? The consumers do not know that. Banks are not required to disclose that information because it is not income they make AT CLOSING. This is another reason why many loans cannot get modified. The bank you write your mortgage checks to may not actually own the loan. They may only be servicing it. So, they cannot modify a loan they don't own. Blame the mortgage brokers though....
Hi Jason
I like what Ellen Crawford said about the 'Patient" . I agreed with her description. It sums this problem up well. Like you I feel the groundwork is being laid for more intervention.
Jason, The more our government gets involved in anything the more it becomes an anchor! I also agree that the rules were too loose but wow has the pendulum swung the other way. I'm all for less Government. I just watched Sara Palin's speech at the tea party conference and wow it was like hearing a breath of fresh air.
Jason, so this is what is being proposed that would put mortgage brokers out of business. I had heard rumors of it. The YSP is disclosed on the new Good Faith Estimate - so everyone knows what it is. If the purpose is to help buyers with less out of pocket costs and give the mortgage broker an income, what is the problem? It is disclosed. Sounds like the banks just want to get rid of some more competition.
Jason , really interesting, this something that merits more research. Thanks
Oh, Jason, stirring the pot, I see! Honestly, I'm glad you posted this and I do appreciate you spreading the word. The consumer who is purchasing property (Since Januray) is made aware of the YSP, as Sharon stated but, do they really pay attention? I've had a few Closings with the new HUD-1s and see the GFE's but, not one client has asked a question about this--even those who used the broker (and not the lender directly). I would wager that 99%+ of the general public knows nothing about this. So, small business is going to take another lick, and lose another group of Americans practicing free enterprise. And you're right, we're next.
Doesn't anyone else see that this is the beginning of socialism--large corporations "winning" favors from the government, who in-turn, are taking them over while quietly putting small businesses OUT of business?
What's WRONG with this picture and why isn't anyone doing anything about it?
Eric - I don't begrudge your making a profit. Really, I don't. In fact, I am really not against YSPs. I am against mis-using them in a way that benefits the service provider at the unfair expense of the consumer.
I am for full disclosure. If the consumer understands what they are paying, how much it is costing them, what their alternatives are, and they sign the HUD-1 with that full knowledge, than who am I to tell them otherwise. My position is that perhaps the practice should be banned unless there is a way to insure the consumer's eyes are wide open before they accept it.
Perhaps real estate agents should be a more diligent in reviewing GFE's and HUD-1s with their clients and answer all the questions that aren't asked. I personally feel I owe that to my clients.
As for the banks and their service release premiums, "zero cost" mortgages, etc., you are right. They should also be required to disclose, and in a way that the consumer understands. Anyone who is paying for anything ought to know what they are paying for.
I will be happy to sign up for any call to action you send my way to alert my government that we need to level the playing field, even lean it in favor of the consumer.
Debe - I like to think that government, with it's all its faults, understands its mission to protect the citizenry. I think that consumer protection legislation, while not perfect, is better than none at all.
I think my definition of socialism is a little different than yours. I doubt you would find any corporations, large or small, that would agree that socialism equates with them "winning favors from government". Corporations are all about making profits. Socialism is all about removing profits.
I think it will eliminate the preditory lenders but also the good ones. The new GFI is very strict in what they disclose. But, like Debe, I have not seen any consumers flinch at it. It is a difficult decision as Americans are so sick of the word bank. They want to do anything to get their bail out money back.
Hi Jason,
As Debe said you are stirring the pot which is a good thing. I'm glad you went into depth about this issue and are forcing us to address what the government is proposing to do. The banks want into our industry and has been trying for years..we do the consumer to be protected but we need to be careful of whose pockets are being lined in the process.
Jason: great post -- It is a shame that we have to skirt around political issues in an effort not to offend a potential customer. The only thing that needs stronger regulation is Congress itself. They are all (for the most part) self serving and self promoting neither of which is good any industry or our Country as a whole.. Thanks for bring this to everyone's attention.
Jason, this is very frightening, because then it seems that brokers will have to charge the consumer MORE money in order to survive! ACK!
I understand the intent of the proposal, but you are right, it will eliminate many of the GOOD lenders along with the predatory ones.
Jason, first off knowing you, I understand that this is NOT a political post but readers will try and make it so! I think this is an effort to try and deal with not just questionable but predatory lending practices. I have had 3 closings since the new HUD 1 and at two of them (for my buyers) the lender showed up and addressed the topic. I will say that the lender on both occasions was a S&L. Whether this smacks of government interference or not I think it is good to make an effort.After all we had years of rampant and ending greed by many people who were happily ripping off the public on every level and that almost drove this country into a true depression. So my point is that it with all the people involved it won't be prefect and may be an arduous process but it's needed and like your post oversight is neede too.
BTW...I am just as bummed as you that the Cowbays are not in the Superbowl but did you have to go "all business" today? What a buzzkill and GEAUX Saints! ;-P
Sadly, the government's remedies to just about any problem, especially the housing industry, is to make the Amrican consumer, home owner pay and pay and pay.
The American home buyer and home owner is tapped out. So, the industry dies without them and the government's solution is to dig the grave for the housing industry ever deeper.
We're doomed.
Good Morning, Jason. This is clearly a hotly contended issues and I really do not feel equipped to take a stand. You have provided a lot of food for thought. Thanks!
Are Mortgage brokers in general already standing at the edge of the cliff ? Is this the final thing that will push the remainder over it ?
Jason, I agree with you that anything that hinders the free enterprise system hurts our nation as a whole.
Jason - What a fantastic post ! I was just discussing similar topics with a mortgage professional Friday night. They are just getting squeezed in too many directions. And what would happen if the majority of the better mortgage pros left the business, then we are left with the folks who are not as good as what they do handling the mortgage process ??? It is bad... I think we are already walking on minefields as it is. Overregulation will definitely hamper the client service that is given to consumers as it may the last straw for folks to just leave the mortgage industry all-together.
On second thought I have to agree with Lenn...We're doomed.
Hi Jason -- Interesting. While I am personally against regulating piece-meal things as it always impacts anything else, I don't view this proposed change as a big deal. Why, might you ask? Simply that anytime congress enacts something, private enterprise will find a way around it by raising some other fee it charges. So, if congress were to eliminate the YSP, mortgage brokers would raise other fees.
What I would really like to see is 100% transparency. I have had many an educated consumer (MBA, J.D., M.D.) tell me they don't understand mortgage financing and how to compare apples-to-apples, even after trying to do some research. To me, that is the fundamental issue that consumers cannot easily compare and understand. I know the feds try to help with a revamped GFE, HUD1, etc., but they are mostly incompetent in making things transparent and consistent.
Good post. We as REALTORS must pay attention to moves like the one to ban YSP. Let me disclose first that I am the wirfe of a mortgage broker. Maybe you think that makes me biased. I think it makes me informed on how this really works.
The eliminiation of YSP effectively eliminates the mortgage brokerage business. That is practically their only means of income. Without YSP, they must charge more up front to cash strapped buyers which prevents brokers from being competitive with the big box lenders.
Let me also point out that YSP collected by a LO very rarely results in any noticeable difference in the borrowers interest rates. Most lenders currently offer very attractive YSP to encourage brokers to originate loans for them.
This move by Congress is just a ploy on the behalf of BIG BANKS to eliminate their competition and eliminate the consumers ability to choose. The eliminiation of YSP will result in higher interest rates, higher closing costs, and a bigger stream of income for the few remaining big banks.
Don't you think the fees the banks charge accountholders for checking, savings, & credit cards ought to be enough without the further need to slow down the housing recovery.
If you have enjoyed your experiences working with BIG LENDERS (AKA COUNTRYWIDE & BOA), ignore it. If you don't care about your clients having more than a few options for financing, ignore it. If you don't need to close very many deals in a year, ignore it. If you don't need your LO to return your calls or your buyers (you think you have problems now, wait til they double their business & relax into the comfort of knowing you can't go anywhere else) , ignore it.
Every change they make that they think will help the public actually hurts them.
Overregulation is not good in any industry. After all, they know what's best for consumers, right? In my opinion, the more government gets involved in areas such as this, the worse off consumers are as a whole. Thanks for the post.
I agree with Ellen. Don't kill the patient. This is one involved post, but bookmarked for further review. The government needs to quit writing more legislation to "help out". We need programs to get the inventory down, jobs so people can by and a little less in the way of more regulation
Big Banks, Inc. are behind this... Kill off the ankle-biters (the loan broker industry), and the table is theirs to run. The consumer loses on this one.
Jason, The options for Mortgage professionals are exactly as you noted but let's add another dimension. The National Mortgage Licensing System (NMLS) is currently being implemented. Sadly in excess of 30% of CURRENT originators are failing the test. This means that something that additional house cleaning needs to be done. This is considered an entry level test!! Sadly, most of the changes that went into effect on January 1st will harm the consumer. By 2011 the Consumer will be paying more and will have less choice. Eliminating YSP just hurts the consumer more and more. Honest brokers often use the YSP to pay costs for the consumers and make an otherwise dead deal move to closing
Government does not take the time to fully understand the ramifications of their actions. We've seen too many unintended consequences in the past. It is time for our "leaders" to stop throwing babies out with the bathwater.
Jason,
I agree wholeheartedly with you on this. The government right now seems to be headed down a road that will tell all of us how much we are allowed to earn etc.
Thank you for posting this!
Jason: Great post. Thank you! The day of the mortgage broker is gone for now. Perhaps they'll make a comeback at some point but, right now, everything is controlled by the banks. A mortgage broker even has to disclose YSP on the Good Faith Estimate and the borrower has to agree to pay it to the broker. One of the predictions is that over 50% of the mortgage companies nationwide will disappear by the end of this year. This is primarily due to lower loan originations. We're seeing it at my company. We are a large and growing mortgage banker. Everyone is scrambling to become a banker where they control their own destiny (in-house underwriting, etc.). For us, it's a tremendous opportunity for growth and it makes me wonder if perhaps there weren't too many of us in the heyday. I too wonder about government interference. I'm not sure they've ever gotten it right and personally prefer the free market. Again, thanks for the post. It's going to be an interesting next couple of years!
Jason,
Great post. As Realtors, it is important to know what may impact our business and more importantly, our buyers and sellers ability to buy and sell. I agree that there must be measures to protect the public from preditors.....via disclosure and self managing our respective industries. However, when government gets involved in restricting the natural supply and demand it throws off the cycle. Less competition means less consumer choice.
Transparency can only go so far. For instance, if I take a listing then there is an agreed upon commission. Should I have to reveal that upfront to a buyer who wants to purchase through me? Only with the seller's premission but not as a matter of a law that states I have to. Doesn't that violate the seller's rights if I have to. I understand that companies like Countrywide were doubling and tripling commissions to originators to get people into the subprime loan so they could package it. To me if you want to create law that stops predatory lending just like laws that prevent usurious interest rates fine. Just give me a system bu which I can compare cost, and make an informed decision. If we create an open market system, then someone trying to gouge the public will be gone quickly.
Dude....I'm not a political blogger. In other words, I don't look to blog politically, but in my quest to serve I want to be transparent as well. I do blog almost every month about politics. The phrase, speak before you aren't allowed to speak moves me in this direction. Needless to say, I am so familiar with this proposition. In fact we've been involved politically in addressing these new changes. I don't like what the president is doing. The bottom line is that the gov should have prosecuted criminals when they were there. now they've whiplashed through overcorrection. I guarantee a stiff prosecution would still enable the other 97%+ of eithical members of our business would act appropriately. Now we stare in the face of paralysis because of overcorrection. That would never have been a thought had they prosecuted the schmucks up front.
Jason, consider that this is one small iota of government involvement and regulation of our lives. I'm a proponent of free enterprise and feel that that environment can level any playing field given enough time. The artificial interjection of each passing administrations attempt at correcting businesses woes continues to lay bare wounds open to various forms of infection both at a microbial level and visible (transparent) arena. I don't foresee a good outcome of the latest barrage of governmental input into our society and believe our saturation point has or is soon to be breached. We have allowed this to happen and are all held accountable by the simple act of a vote. If we don't start reeling in now I'm not sure that the tackle will withstand the force. Set the drag lightly and we can wear them down in due time. Thanks!
Jason, I did take the time to read this. Thanks for putting in the effort. It seems to be an ongoing process of the government wanting to control things when it is not always for the best.
Most of the mortgage brokers I know went out of business. If this regulation take place, we will have only the banks and big corporations making loans. Then banks have made money through this whole mess. There is to much wrong with this picture.
I've always worked for a mortgage banker and so have never been required to disclose YSP, but I always have anyway. I've always gone over my GFE's (the old ones that we now have to use as worksheets in order to show the borrower their true cash-to-close and monthly payment). I've always explained to my borrowers exactly how I get paid and where I make that money in the deal so that they can choose how they want to pay. I have NEVER once had a client balk about me getting paid to do my job. However, I have had clients think they can get a better deal somewhere else only to end up calling me to ask questions because they can't reach their loan officer OR worse calling me from the closing table because they were sold a bait-n-switch and they want to know how fast I can rescue them.
The extreme result of these measures will be that there will be 5 or 6 large banks that are allowed to make residential mortgage loans. Those of us that choose to stay in the business will be in cubicles and our monthly pay will be determined by some fat cat somewhere on the 10th floor. I can tell you I WON'T be in this business at that point and the industry will lose a very committed, conscientious loan officer.
And you (Realtors, Financial Advisers, Investment Brokers, anyone who makes a commission from selling a product or service tied to the financial market) better believe they will come after you too.
Where's George Carlin when we need him?
"Government Remedy" ?!
This "Solution" from the same folks who propose to cut the mortgage interest tax deduction?
Doctor Killpatient is certainly in "Healing" mode!
So...You have a cold...Why not take this ultra-strong antibiotic that will not only eliminate the bad bacteria, but also eviscerate any good bacteria that keeps your system healthy?
And for his next trick, the good Dr. will remove an arterial blockage with a shotgun blast to the chest...
Genius!!!
Thanks for the time it took to write this post as it was well worth my time to read it.
All the best!
Brian Morgenweck, Broker/Owner
Power Realty Group, Hackensack, NJ
Wow, enlightening indeed. More government interference is definitely not the answer. Scary to think of the repurcussions to our industry if this passes. Thanks for the heads up!
One of the biggest problems with yield spread premiums is that the term confuses people. Let me put it in plain terms fo everyone understands. What is being proposed essentially eliminates PROFIT MARGIN. For some reason, the mortgage brokerage industry and banks complicates the issue by using funny terms like YSP.
The concept is real simple. Wholesale Rate + YSP = Retail Rate. These undercover communists in consumer advocacy groups and sound bite politicians don't understand the difference between WHOLESALE and RETAIL. If you elimate YSP, the only way for a consumer to get a mortgage through a broker is to pay the profit margin upfront which would kill the broker business because consumers would have to front the cash.
Here is an example for the Realtors. What if the Feds made it illegal for the selling agent to pay the buyer's agent's commission? This would mean that buyer's agents could only be compensated by the buyer directly. What effect do you think that would have on the ability of buyer's agents to earn a living if everyone of your clients essentially had to pay your 2.5%-3% in CASH? Goodbye buyer's agents. You make think you are worth your commission, but see what happens when the buyer has to pay it directly.
This law is like the Feds going to Wal-Mart saying they are over charging for socks because they mark up the wholesale price from the Chinese.
Take the test, which is the better loan?
A) Too Big Too Fail Bank offers a 30 Year at 5.5% (no SRP disclosed to consumer) vs
B) Mom & Pop Broker offers a 30 Year at 5.25% (with 2% ysp being paid to the broker by the Too Big To Fail Bank)
If you don't know the answer you are too stupid to be a homeowner and should probably run for political office.
Great Post. For those who said that this was too much to read, I disagree completely. I thought that your post was very informative and an important topic to take the time to read it completely. Thank you.
jason, yield spread premium as we know it has already been eliminated. on the new good faith estimate which became effective on Jan. 1, 2010, a broker and/or lender must disclose all the compensation they would like to earn in box 1. then, if there is a credit based on the interest rate (formerly yield spread premium), that credit goes to the borrower and is used to reduce the lender/broker fees and compensation listed in box 1. us brokers can no longer earn both origination and yield spread, because any left over credit always goes to reducing the borrowers lender fees.
While I can understand the government's intent to wipe out predatory lending, over-regulation is probably not the best method to achieve the desired results. Hopefully it's just hyperbole to "scare" the lending institution to regulate themselves without implementing new regulations.
I've always felt that everything the brokers were making should be disclosed to the client. But I just feel sick thinking about more government intervention.
I understand why mortgage brokers came to be in the cross-hairs of an attack, but in the meanwhile, the primary target - the big banks are being given free reign. If anyone thinks that the big banks aren't behind this - they are delusional.
YSP has always been disclosed by the brokers. It shows up on the HUD-1 as a POC item. Banks are the ones that don't have to disclose their Service Release Premium. The reality is that consumers DO NOT CARE. All that matters is the final rate and terms of the loan. No one cares what brokers are making on the loan. This is just a smoke screen issue that is being promoted so the TBTF banks can further elimate competition.
Another Example:
Wal-Mart has socks for $2.50 and makes $2.00 in profit. Target as socks for $3.00 and makes $1.00 in profit. Who would you rather buy socks from? Wal-Mart or Target? Please tell me why it matters that Wal-Mart is making more profit than Target if the final cost you are paying for your socks is still lower than Targets? It doesn't! At least not until Target payoffs of the Democrats and uses an argument like Predatory Sock Selling to get them to make it illegal to earn a profit margin... sorry, I meant "Yield Sock Premium".
I have tried to be an UPFRONT MORTGAGE BROKER for years and consumers flat out do not care what I am making. It is totally irrelevant to the transaction. Everytime you try to explain YSP to consumers it always comes right back to what is my rate and closing costs. If it is cheaper than the guy down the street, they could care less if I was making $500 or $10,000 on their loan.
Jason,
I am glad you brought this conversation up on AR.
I have to agree With Larry Bettag (comment #39) above
"That would never have been a thought had they prosecuted the schmucks up front".
My biggest pet peeve in the mortgage industry right now is that we still have little enforcement like Larry points out. We actually have some great laws in place to protect the consumer from all kinds of bad lenders, but the government has no teeth. Instead they want to continue to regulate and not enforce. In the end the only person who is punished is the consumer. The game continues.
Thanks for this informative post! I learned a good deal. While I agree that overregulation isn't the answer, I do think that some useful regulation would have helped blow the whistle on the irresponsible practices going on from 2000-2006. Hopefully everyone can pull together to get the right amount of regulation in lending.
Jason and to everyone else reading this...the doom of the YSP by the gov't is not just for brokers. Those in congress are trying to stop YSP in general, and this would affect both broker and banker. I will be writing about this and more, and about the breakdowns.
Also... Jason, you mentioned this... "Charge a lot more directly to consumers to originate loans, since they can't get paid by banks, or"
In more than a few cases, the lender won't be able to charge more to compensate the loss of the YSP. Why do I say this? Most states have a cap that can be charged. In NJ, it's 4.25% of the loan amount... in PA, it's 5%, in Georgia it's 4.95%, and in FL it's 5%. And what is included other than the lender's charges? Such charges as the closing/settlement fee and any lawyers fees. Who this would affect even more? Those buying homes of like $150,000 or less, because each lender and loan officer has a profit margin.... and their company fees that it costs in doing a loan are all part of this. Again, I will be breaking this down in more detail... because you do bring up a good point, but I see too many assumptions that are incorrect.
Lastly, I wanted to clarify something. Jason, I think you did a good job of writing this and putting this out there. And people need to be aware of this... But after reading this blog and many of the comments, I can see many assumptions that aren't correct.
MOST of what we hear from Washington these days is designed to destroy the free enterprise system.
Jason... ps... I did want to come back.. I meant to say that I do agree with the theme of your post, that the gov't is trying to intervene again and that there would be more government intervention per se. So, I agree with that general statement and the message. But I just had to get into the specifics that the gov't is not doing this to just mortgage brokers, that it will be for mortgage bankers... even though at this time, mortgage bankers don't have to disclose YSP... and just for the fact, yes, the lender could charge the borrower more money, but this might not be possible because of the state and federal regulations that keep lenders from charging in excess. thanks..
I agree with Deb (#14) on this...that this is the beginning of socialism and as Lenn (#21) stated...we are doomed!
Thankfully, most commenters have stuck to the issue instead of calling names.
At this point, anything done to make buying a house more difficult is not good for our economy - for people of all income levels.
If anything needs to be regulated, in my humble opinion, it's the credit card industry.
And, Jason, I think you did a good job of outlining the issue.
I am for full disclosure by both banks and brokers. At the end of the day the government is trying to cap the amount money we earn but acting as if these changes are really helping the consumer.
Jason
This topic is a major thorn for many of us mortgage brokers. I have been on all sides of the fence as a banker, mortgage banker, and now mortgage broker. I would not change my current position, but might have to do so by regulations.
Many on here have made some good valid points. The key point though is that our Politicians are lead by powerful lobbyists who represent key industries such as banking; therefore, they usually hear what the lobbyists want them to hear. Our political system, even though it is the best out there, is full of special interests and corruption.
How many of these same politicians( most who are Lawyers ) are willing to change the fee structure for their industry that takes 33% or sometimes more thru billable hours to win a case. Now I'd say that is gouging and excessive, but the politicians won't touch it.
With respect to the YSP, we will continue to have issues until all regulatory agencies regulate the Banks in the same fashion with respect to disclosure. This point has been made, but beyond me as to why banks and mortgage bankers are not required to disclose the same.
Thanks for stirring the pot.
We need to keep our politicians feet to the fire on this one.
Yeah, like not having government involvement has worked out so well for us to this point!
Russ (post #46 & #52), you have hit the nail on the head! I started out in mortgages 20 years ago and then opened my own mortgage brokerage. From there, we opened the real estate company. A year and a half ago I shut down the mortgage company because the government and the banks are doing everything in their power to eliminate the brokers. According to a study by Wholesale Access released in July 2005, mortgage brokers accounted for 68% of 2004 origination activity. That number has decreased significantly. How nice (sarcastic) that the banks have been able to get rid of all that competition by blaming the crisis on a small number of mortgage brokers. At the end of the day, a complete loan package with all kinds of buyer documentation was UNDERWRITTEN by the bank that funded the loan and created the mortgage program for which the buyer was qualified by the broker. Talk about passing the buck!
Joe (comment #7) you say there was "too much opportunity for bad players to line their pockets at the public's expense". As a real estate broker I educate my buyers on the Good Faith Estimate, the APR, rate, points, etc., before they ever make a decision on a loan or program. It doesn't matter what industry you talk about, there will always be "bad players". Real estate brokers CAN offer a value proposition by educating themselves on mortgages, the mortgage market, and how it operates. It absolutely floors me that most real estate practitioners know little to nothing about the mortgage market. The average mortgage broker earns every penny they get. They are usually paid on commission just like real estate agents. And, if they do their job, know their programs, and charge my buyers a fair price (interest rate & terms), they deserve any profit they are able to earn. Just like us.
I completely agree with Denese (comment #43) when she says "Realtors, Financial Advisers, Investment Brokers, anyone who makes a commission from selling a product or service tied to the financial market better believe they will come after you too." Less choice equals higher prices. We've already seen what has happened to the price of appraisals with the new regulations. It's the very reason NAR lobbies to keep banks out of the real estate business. (read http://www.madalcapital.com/new-bill-to-keep-banks-out-of-real-estate ). Monopolies are bad for competition and bad for the consumer. The tools to compare loan products are already there. Educate yourself and educate your customer.
Great post, Jason! Big government = Bad government
I'm not opposed to regulating full disclosure. I feel the consumer has a right to know, but I also believe that if the consumer is educated and knows that the mortgage broker can get a better rate, charge him less fees and then get some their pay from the investor the consumer would be okay with that. It's not like they are paying a HIGHER rate. The biggest problem I see is this legislation proposal is being led by lobbyist who work for the big banks who are working hard to rid themselves of pesky little mortgage brokers who take part of their business. Next thing you know they'll be trying to push out independent Real Estate Brokers, who's next?
Great political post without being political. You are correct this would hinder the market. The market has naturally corrected itself. Lending requirements became too flexible and have now become more stringent. Ups and downs are part of our free market economy.
I agree with the majority of the coomments that the bigger the gov't, the badder
Not to be a cynic, but I find it humorous that the government also enjoys inserting itself from "the moral high ground" to do what is best for the consumer. As you mentioned, they helped facilitate the mess we're in, so they certainly should be the ones to fix it. This reminds me of the boat filled with holes. You plug up one hole, and water starts pouring in from another. There is and never will be a perfect lending system. I agree that the lending requirements became way too lax (before my time in the business) and that is probably an understatement. But swinging to the opposite end of the spectrum has not helped either. Limiting the availability of loan programs while piling on government regulation just doesn't sound like a legitimate solution to me.
Crouch - Well articulated. Talks of getting rid of YSP have been going on for quite some time. While I believe in regulation, I think we share the view that over-regulation could be a recipe for disaster. The laws, for the most part, are already in place. Just enforce them.
And for those who think that folks working on commission make too much money, I'm willing to compromise. Set limits all you want on what your local or national Mortgage Guy or Gal can make on a transaction. I'm cool with that. Do the same with Lawyers, Politicians, Doctors, Investment Bankers, etc. Open the floodgates of how much everyone is making and if they "deserve" that monetary compensation for what they are doing. I'm not a hard guy to please; I just demand some consistency.
Or, we can get away from the blame game (which is probably one of the reasons YSP is even an issue) and continue to make strides in working hard, treating people fairly, and going "Old-School" in our entrepreneurship ways. Remember, a lot of our ancestors came here with very little and achieved quite a lot. We have this quirky thing in us to historically grow wise in our progress, ideas, & implementation of both.
Knee-jerk reactions to complex problems usually lead to unintended consequences. Congress should protect the consumer by making things upfront and transparent ... not interfere with the free enterprise system. While the intent is to improve the system ... it may end up wrecking the market all together.
Unfortunately, this is the result of having people without a real clue trying to regulate an industry based on sound bites... It sounds good until you look at the underlying business principles.
I hardly trust the government to haul away my garbage. You can count on the fact they will be self-serving and will mess it up. Leave the free market alone.
Jason - Thanks for putting all this information together showcasing another example of the government overreacting. Lets hope this doesn't become law.
Jason, I'm going to take Melissa Zavala's line: I'm not equipped to sufficiently comment on this...
but I am glad that there are people like Jeff who are, so I'll be looking for the follow-up from the both of you...
As a loan Officer we have constantly faced challenges daily, while the Banking industry lobbists have prevailed to restrict the same disclosures we are required to provide. Mortgage Broker Lobbists do not have the same mouth pieces they banking lobbists do or the money to line the politicians pockets to stop the regulations. Brokers have been blamed for the crisis we are in, but brokers did not make the loan programs, Banks do!
WAMU forced 996,000 loans to have higher appraisal and would black ball any appraisor that did not play ball. Countrywide settled out of court with 11 states for predatory lending. Bank of America has to buy back $4.3 Billion in loans and $5.1 Billion for Chase back from Fannie Mae after Fannie Mae did audits on loans that were sold to them and did not use the standards that were set in place by Fannie Mae.
Policy that are written to favor one portion of the industry, is a failed system, and the outcome will only be more of the same.
What they are trying to do is do away with mortgage brokers and leave it all to the banks
What they are trying to do is do away with mortgage brokers and leave it all to the banks
Okay, I thought I had a pretty good grasp on what's going on here, until I read Jeff Belonger's posts 55 and 57 where he says this potential legislation is meant to eliminate the YSP from Brokers AND Bankers. All other posts indicate that only Brokers charge the YSP and that the big banks are behind this to eliminate the brokers as competition.
Can anyone help me with this?
Thanks!
This is a provocative issue. I enjoyed the comments. Thanks.
Jason- and the next bill just might be one that says that Realtors® make too much money and therefor our commissions should be capped or perhaps we will have to take a full page ad in the local paper disclosing exactly how much we are going to make on a transaction if the seller chooses to hire us.
Free enterprise is being attacked on all sides. This bill for Yield Spreads is going to make it that much harder for a buyer to get a loan. What the heck is wrong with a mortgage broker making a living and why should he have to disclose how much he makes? Do you get to see exactly how much profit every one you buy from makes? This is yet another slippery slope. I had to refrain from not turning this comment into a post since I get so livid about these intrusion issues. Katerina
Jason:
Great article and some interesting responses. This proposal does not look good for the health of the mortgage industry. If it hurts them, it will hurt us. We have a symbiotic relationship.
Russ:
I would never buy my socks at Wally World. Many of the people who work there don't get benefits and qualify for food stamps. Who pays for that? We all do!!!
If I'm understanding your post correctly, this is not a good thing at all and will hurt buyers tremendously. I am really concerned about the government trying to control everything. I would hate to be in the mortgage business right now, it seems like things are constantly changing. Thanks for bringing this to our attention, I hadn't heard about it.
I don't see any way that removing the YSPs can help the consumer only limit his options and ability to get home loans.
I understand that the government is trying to help the consumer, but they need to better understand that pros and cons of an issue before they jump in and decide the best way to "help." In many cases, less regulation seems to work better.
My commission is on the HUD; the yield spread should be on the HUD.
And it would be nice to regulate the amounts and types of fees charged. And enforcement needs to be brutal and consistent.
Thanks Dorie & Rebecca! I never EVER thought that I would say this but, I too, agree with Lenn! (Not that I would ever agree with her because I almost ALWAYS do but, that on this issue, my glass in ALMOST empty, not even half-empty!) We ARE doomed--UNLESS we collectively do something about it!
Joe:
The definition of socialism:
"Any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods"
Sound familiar? What other explanation do you have for what is going on?
What OTHER explanation do you have for the Transportation Secretary speaking out last week, telling Toyota owners to "stop driving" their vehicles--no, this was no Freudian slip, followed up by, "and take your car to have the recall work completed." This comment was intentional and planned. We now have ownership in American-made cars; doesn't the comment make you wonder where we're headed?
Same with the banks--we have ownership in the large banks--why NOT put the small business brokerages (the competition) out of business by creating every type of regulation that we (our government) can? John Q doesn't see what's going on and those at the helm hope we don't either.
I'm not a conspiracy theorist either--but, I do read between the lines and have dear friends who moved here from socialist countries who have already lived this nightmare and are even more afraid than I am that socialism is the direction in which we are headed.
Jason: I knew this post would generate a good debate! Great job stirring the pot!
Have a wonderful week...
From what I understand Banks where actually paying mortgage brokers, in some cases, 3x more to give a subprime loan instead of a prime.... For people who could have totally done a regular conventional loan.... There was a case shown in the CDPE class I just took where the Broker was able to negotiate HIS number to make $24,000 on one closing of a home of $500,000.... This is rediculous!!! Plain unethical greed is what got us where we are and we all have alot of FREE work to do before we get our economy back into a decent state....
I listened to a conference call last week through mortgage market guide that was an interview of one of the central politicians involved in trying to pass this legislation. He was stating that they claim they are not trying to do away with YSP, but rather each broker would have to draw up a contract with each lender for a rate they would charge on each transaction. The rate could not change from transaction to transaction, and in fact could not even be lowered in order to match an offer another lender might have. He went on to claim that it wouldn't matter how the contract rate was earned- YSP or up-front origination fees.
This seems to be even worse than eliminating YSP. It would leave brokers to essentially guess what other lenders would charge, and would help discount call-center type lenders operating on volume with little or not professional advice or service to consumers. Not only that, but borrowers in markets with smaller loan amounts would get seriously hammered if brokers would be forced to make the same amount on a smaller loan size than on a larger one because as a percentage, the same dollar-amount commission on a small loan size would result in either a very high origination fee or a very high rate in order to meet that contract rate.
I was thinking of crafting a response to you, Debe. Why bother? There are too many of you all and just one of me, it gives me a headache, and afterall, we're all doomed. :)
Have a GREAT day, everybody. Good luck on election day.
Joe Sheehan
www.card.ly/jsheehan200
Jason:
With all that has happened in the economy and the housing industry, in particular, there has been a realization that some regulations that were previously lifted should indeed have been left in place. However, I think this is starting to swing things too much in favor of regulation and will hurt the consumer.
Sorry. I didn't read it all nor do I fully understand the issues that caused you to write the post. I just don't understand why I, a real estate salesperson, must read the "Miranda Rights" called the consumer information statement to customers while the mortgage representative can come across as their best friend. I say good. Let the regulations begin - they are about ten years too late for a "industry" that has too many sales people that think they are smarter than the rest of us.
Lenn - I agree. Our current politicians are looking at self preservation. They created this mess, didn't do anything about it when it was a big issue, and are now overreaching to fix a problem that they created. It will only make things worse for the American consumer...look at HVCC.
Aaron - it is on the hud and the gfe.
I think most of us understand that regulation is bad and will cause more costs to be put on the consumer. What some may not understand or remember, is that there was a time that there were few mortgage brokers. The demise of the savings and loan industry was caused in part by government relaxing the requirements that the industry was under in respect to collateral. That is, a savings and loan could make a loan on speculative property as opposed to the singe family home. This change created many new players in the mortgage market under the guise of savings and loans. They were "bailed" out by the Resolution Trust and their assets were distributed to.........big banks. Competition totally wiped out for banks. Then they needed someone to sell their money-hence mortgage brokers were born. They gave a wholesale rate to brokers who marked it up for profit. Why did it happen this way? Because the government guidelines at the time and still today, have no place for the expense to go to the buyer? It is hidden. This involves Fannie and Freddie, FHA and VA, and any other government program. Just remember that banks ultimately set rates, so the problem begs the question, "what is the true rate that a consumer should pay" This is a ponzi scheme.
As a former owner of a mortgage firm that I closed due to government regulation and interference, I have 15 plus years experience. I have watched a industry get sucked in to the excesses of banks, now most of my friends in the industry are gone.
Our HUDs now reflect mortgages that are predominantly handled by banks, the other contractors such as appraisers and inpectors are under assault for nationalization and the only one left standing may be Real Estate agents. But with the Credit Unions opening up firms in their offices, with banks owning much of the existing inventory, they are positioned to take agents out of the mix.
Look for greater changes coming, and none will be good for the real estate industry.
Jerri - in the eyes of legislators, mortgage brokers and bank originators are different. Now we both do the same thing when orginating loans but the banks large lobby has tried and succeeded in distorting the differrence between the two. Banks do not have to disclose YSP. I spoke to a bank recruiter last week. He mentioned that the Dept. of Justice is now getting involved. Great - more bureaucrats who do not understand our business are now getting involved to ruin a good business model.
In the past, clients could look at our GFE and determine our rate, closing costs, lender contributions, etc. If you didn't like what we had to offer, then move on. With the new "Bad Faith Estimates" or BFE, the client does not know what to bring to closing, the APR is wrong (and HUD knows this) and we can't show any contributions from anyone. Who's great idea was this?
With declining home values, it has often been necessary to pay some or all of our clients closing costs on refi's. I am doing a loan for a couple in the service and I am paying their closing costs since they may not be there in two years. Bottom line, clients now have fewer options for financing loans and in some cases be worse off than a few years ago.
I think this may be the first of many changes to come forth, what are they thinking?
Congressional actions are like the wind. One time, long ago on a golf course, a golfer asked Slammin Sammy Snead on a tee:"Is the wind blowing into us or across us." Sammy replied: "What wind there is, is against us." Meaning, whichever way the wind blows will make the ball fly differently than it would without wind. Now I don't know if he made it up or not... the point being, whatever Congress does, is ultimately against us. They are nothing but reactionaries any longer. There is no vision for what is right or wrong... or at least it's in the vast minority. November is coming...
We do not need more intellectual power, we need more spiritual power. We do not need more of the things that are seen, we need more of the things that are unseen.
Calvin Coolidge
Interesting post and congrats on the feature.
Jason,
I listened to an interview with an attorney from the Federal Reserve involved in drafting the proposed new rules revising Regulation Z (Truth in Lending). The fundamental principle is that the rule makers do not want loan originator compensation to be based on the terms and conditions of the loan.
Loan originators for this regulation are either brokers or lender employees. So the compensation rule change would apply to everyone originating loans.
However, the proposed regulations do mention that loan originator compensation based on the loan amount has been customary, and they probably will not try to change that to have flat fees.
The issue is not elimination of YSP, it is the elimination of YSP paid to brokers. He said there is no objection to YSP going to borrowers.
In fact, the new GFE already reflects this because YSP shows as a credit to the borrower, and the broker's origination charge increases to account for the YSP going to the borrower. Thus a no-fee or no-cost closing is still possible if the broker's origination charge is less than the YSP credit.
The issue that all of us need to face is whether or not things reach a point where we work for a flat fee instead of commission based on the size of the transaction.
I know there are real estate agents already doing listings for flat fees and some credit unions and banks do not pay their loan officers commissions based on transactions or loan profitability.
The regulators seek to establish a marketplace where real estate and lending is priced like gasoline--imagine a major intersection with 4 gas stations, one on each corner, with minimal price variation. Now substitute banks or lenders for those gas stations.
However, as of today, nobody checks the driving record of the person filling the tank, measures their car for gas mileage, makes sure they're insured, or calculates their cost of gas versus their monthly income. Of course we also don't give the drivers tax incentives or subsidize their gas purchases. We don't seem to hold auto ownership in the same high regard of social importance as home ownership.
The irony is that some smaller transactions take a lot more time and effort compared to bigger ones, particularly dealing with first time homebuyers with down payment and credit issues, so going to a flat fee or even basing on the transaction size doesn't necessarily have the level of compensation commensurate with the level of effort.
The challenge for us is to focus on differentiating ourselves from the commodity service providers. If we do that, we will still make a nice living. If we whine, we're wasting energy that could be channeled to our own profit.
Many years ago, the SEC required public companies to write their offering documents in "plain english." This was directed to the individual investor who needed help understanding a company's business and plans for utilization of the money being raised in the public offering.
Many years ago, the accounting rules changed whereby banks could no longer recognize the revenue from mortgage origination fees "up front" - they were required to earn the income over the life of the mortgage loan.
YSPs are bad for the consumer, because they don't understand that the mortgage broker is incentivised to offer those products that pay him more, and most consumers don't understand the relationship between the cost of financing versus the product that pays the mortgage broker the most up front.
Yes, brokers right now have access to wholesale rates. But look at every other industry out there that has eliminated the middleman - they are thriving. Look at the travel industry. No one goes to a travel agent anymore because they can get better rates booking directly with the airline. I tend to think this also applies to going directly to the lender. If they don't have to pay YSPs to the brokers, there has to be savings to the consumer.
Let me first say that this ruling will Include Corespondents and Banks (in Fact the banks want it).
I listen to a Webinar last week - where a Top Placed Federal Reserve Executive- shocked everyone with this.
It not only eliminates YSP and SRP it makes it so that AllLoan Originators can only get paid Hourly; Salary or a Flat Fee.
A Flat Fee makes the most sense. Think of it as you can only get paid $500.00 on your Real Estate Transaction. No matter the size or how hard it was!
This will eliminate the Traditional Loan Officer, because they will not be able to afford to work for the above terms! (I would imagine that most of us will become Realtors?)
We are past the comment period and they have stated that their will be NO More Discussion on it!
No one from the Mortgage or Real Estate side was consulted about it or will be.
This does not have to go thru congress or the house, the Fed can just make it law!
Bottom Line there is a very good chance that this time next year, you will just send your client to the Bank they use and see if they get a loan, by the 25-35K a year clerk!
Also Par Rates will be about .5% higher, because there will be no competition. (Think of it as buying Gas- no matter where you go it's about the same price and it is all self serve).
Say Good Bye to getting hard loans done or any type of customer service!
I really hope I'm Wrong, but it doesn't look that way! I've helped 1000's of people get a mortgage for the past 18 Years and have a very Loyal Past customer and Realtor following!
Find me one, just one, borrower who has lost their home due to paying 5.5 instead of 5 and Ill support this measure. The fact is that you CANT. YSP is no different that the car salesman who sells a car for more than they paid for it. OR THE REAL ESTATE AGENT WHO SOLD THE LISTING FOR MORE THAN WAS OWED ON THE HOME. All you real estate agents out there, imaging what life would be like if you had the same regs as the mortgage brokers.
Competition trumps regulation and if the borrower doesnt like the deal they got, they can go to a different broker or bank.
Lets remember people, lenders have been dealing with their downturn since the summer of 06 when subprime lending started its downward spiral. 90% of the bad actors are GONE. Back to selling used cars and insurance. The brokers who are left are professionals who are looking to help their borrowers get the best deal possible, and sometimes the best RATE doesnt mean the best DEAL. YSP used to be a contractual sum paid to the broker for selling a higer rate. No different than a real estate agent selling a home for a higher cost that what the seller would take. WHAT IS BEING DONE TO THE MORTGAGE BROKER IS UN-AMERICAN!!!!
I am all for Socialism.
Jason, that was probably the best post I've read. It's a business issue, not a political one and you addressed it perfectly.
Not all of the people originating 2/28's were schmucks, some did not have the mental capacity to know good/bad. We don't prosecute children or the mentally challenged like adults, the issue is that we'll let anyone originate a mortgage.
They need to do something, the argument is what. Personally, I'd prefer something practical like a proficiency exam that gets rid of that bottom 30-40%. That, right there, would have contained the 2/28 portion of this bubble.
Jason,
What a breath of fresh air! Realtors in my area of Florida tend to brush over what is and has been happening to the Mortgage Broker. We are so over-regulated that unless you are in this industry, you don't have clue as to what hoops we have to jump through in order to just get a loan approved. As for the YSP, I believe we are the only professional where the government is allowed to dictate how much we earn. YSP has always been disclosed on the Good Faith Estimate, and , of course, on the HUDI; thus we and realtors are the only professions who have to disclose how much we earn.
If I were a realtor, I would be afraid of what intervention the government has in store for you. With short sales, haven't the banks already interferred with your commissions?
We already have laws in place to protect consumers. Rather than more laws, why doesn't the government just enforce what is already there?
As someone that until last year held a loan origination license and understand the financing side of the business better than most realtors this is just a step by the government so the Big Banks can have a monopoly on the business.
Did you know that loan officers that work for a bank don't have to be licensed? So they get a straight salary and don't have to take any ce classes or get licensed. Currently loan originators have to be licensed nationally and have background checks and fingerprints. I am sure that the banks do background checks on their employees since they are handling other people's money but they don't have to be licensed. I had a client that went to his local bank and he had a great credit rating but was unable to get a mortage, this at one of the top 4 banks in the nation. It took us over 4 weeks to get a no.
You go to a mortgage broker and based on your credit score, job history and financials you can get a pre-approval within a day contingent on them verifying everything.
Just another way to get rid of the competition and then they will try again to get into selling real estate. With the new GFE tolerances and guidelines the YSP has enough control so there is little chance of a loan getting pass the QA audit with higher than normal numbers.
Hopefully the Mortgage Broker's Association will be able to fight this.
I don't think that what I feel towards this can be expressed enough on how stupid and idiotic this proposal can be so far all the help and great ideas the govt has done has only harmed the average guy on the street whilel the big banks have been dishing out record bonuses and as some of the comments have indicted big banks are all for this .... UH HELLO GET A CLUE ... YOU THINK ITS FOR THE WELFARE OF THE PUBLIC AND FAIR COMPETITION....
I think they want to drive all the business to the banks which will be run by the government. The government is already buying homes in foreclosure. Soon housing will be a government monopoly.
Jason, Why did you post this blog. I spent almost 1 hour on this and I gotta go make some money, LOL.
Until I read the comment by Ben Yost, I thought I knew what was going on. I hope he is wrong, and assuming he is, then this is the banks way of putting all us mortgage brokers out of business. Full disclosure is always in the best interests of the consumer, and I am all for that. The new GFE does just that. But there is one problem with all this regulation. The banks are exempt! Make them subject to full disclosure and all the other rules that mortgage brokers are subject to and then you have a level playing field that is good for the consumer. They will truly know what they are paying for the loan.
If mortgage brokers disappear, the consumer will lose because the loan officers at the bank will not put in the necessary effect for any difficult loans unless they can make more money doing those loans.
This is just another step by the big banks to run the brokers out of business. I am quoting my customers par rates. I wa curious how I compared to a bank, so I called BOA and got a quote for rate and fees. As a mortgage broker my rate is less and I give the YSP back to the borrower where a banker does not have to.
While I don't pretend to understand all that you've entailed here, I will go so far as to say that I believe the government has no place in the banking industry. It could, indeed, be a segway right into the real estate industry as well. Thanks for bringing this to our attention!
Velinda, I don't know if that's fair. You should call someone that does mortgages ;)
Realtors, NAR may not be the best thing since sliced bread, but you should take this moment to thank them for being better at lobbying than NAMB.
Jason - This is a great post and I'm glad you took the time to write it. It was well written and kept me engaged in the complex topic. Now my 2 cents ;-)
It seems as though this is just another nail in the coffin for mortgage brokers. I don't think this is fair. I have done loans with banks as well as with brokers, and to me it always seems like there is so much more disclosure when working with a broker than with a bank. Fees vary as much as buying scenarios do, but why don't banks who loan directly have to make the same disclosures? Just because it's in house shouldn't absolve them of the duty to disclose. The playing field would be much more balanced.
Rather, Ben Yost's comments are the most disturbing. If he is in fact correct, then it's a sad day indeed for the free markets. I cannot for the life of me understand why the Fed would do this - except for the fact that this IS exactly what the FED was created to do - manipulate the markets.
Jason - thanks for the info - we don't need things to be harder for buyers and sellers:(
Chris, I do mortgages and represent many on th wholesale side. I wanted to know how I would compair against a banker with the same mortgage program, score, etc. I was less....how can you say that is not fair?
Jason, thanks for the post. I work as a loan originator and my wife is the Mortgage Broker..the fix is in folks the Banks have won the legislative control of finance reforms. it is not why or if this is going to happen...it is a done deal. Financing will cost more and fewer shall qualify.
We have been in business for over 18 years without a single consumer complaint. We believe the market /business of Mortgage brokerage is under attack with the new GFE and other regs..from both the states and the feds.... where is the outrage to protect the consumer from monopolies?
So why is there such a concerted effort to elliminate the Mortgage Broker business? market share for the monopoly lenders that control 90% plus of the loans today.. the lenders are instituting min loan volumes to further reduce the number of Brokers out there... the lenders are introducing price tiering that charge low volume Broker a higher rate to serve the rural communities they serve..
so if realtors want to insure competition for their clients then I hope they review the costs to use a bank compared with the loan rates a Mortgage Broker can obtain...additionally the expanded disclosures and the forced credit for the YSP to the consumer further supports the Mortgage Broker is a better deal for the consumer.
I predict a 30-50% loss in the number of licensed Mortgage Brokers available in the next year.. the fix is in folks the Banks have won the legislative control of finance reforms. So much for competition.
Agreed, over correction and over regulation are helping to kill this industry, HVCC anyone?
www.MorSystems.com
I knew that this was coming
My Opinion:
#1
I always built it into my pitch and address the YSP
#2
If YSP is going to done away with, then so must ALL mortgage people (brokers and bankers) working for commission only. That would stop 75% of dishonest brokers from opening up call centers
Convert sales people to a small income and small commission
This YSP disclosure is already shown up front on the new GFE. In box 1. What's the problem? Concerned that you can't sell your value to the borrowers?
Jeff Belonger wrote a post expanding on this one, and he brings up some additional points to consider:
Congress, YSP (Yield Spread Premium), and the Real Estate Recovery - Some things should be left alone !!!
Yet more power to the corporate direct lender! You couldn't be more right on Jason!
Good info...thanks for sharing.
Mortgage brokers and bankers need a lobbying group that is as good as NAR. Without all the dues :)
Jason - Thank you for the thoughtful post. The banning of ysp's has been in the wind for quite a while now. Obviously this would have a dramatic impact on CONSUMER CHOICE. Most, if not all, of the refinances Cari and I have done over the last year have used the ysp component to meet the needs of the client. Some no point/no fee and others a derivative thereof. Most of the politicians involved in this mess have very deep ties to our current problems in the Financial Industry (Frank, Cuomo et. al.) and abuses at HUD, Fannie & Freddie. I am certain that a lot of the problems in the credit markets were/are a direct result of OVER REGULATION to begin with. Thanks again. ~Doug
Jason.... thanks for linking my post.... I hope many will understand that what the gov't is trying to do now, will hurt both banker and broker... but I don't think they will be able to pull this one off. thanks
Jason, this is just another scam by our Govt. like "Cash 4 Clunkers". They basically bought a huge chunk of GM and needed desperately to have it look like a success/smart move. Why not incentivise new car buying to get GM's sales numbers up and package it as a Govt. subsidy for the poor "little guy"? (encourage debt in this financial environment?)
Same game here. Hundreds of billions of bailout/tarp money and the administration needs it to "pan out" and appear that they did the right thing. This has nothing to do with consumer protection any more than the healthcare bill has anything to do with healthcare.
This is all about taking action to justify or make a previous action look like it was right/smart/sound. They've done the bank bailout, this move will slice a big market share from Brokers and send it to the banks. The stupidity of the bailout will then be fed to "the little guy" as a success. (and far too many will gobble that up)
The YSP game's sole purpose is to give market share to the bailed out banks. C4C's sole purpose was to give market share to GM. Healthcare reform's (as it was written) sole purpose was to get Govt. control on an industry that controls HUGE sums of money. Any patterns forming here?
None of this is about "we the people". It's all about money. Watch for the next move of BIG bank taxation. Most consumers will never get that THEY are the ones who will actually be paying the banks new "fair share" tax. And so it goes...
I'm in a "throw the bums in Congress out" mood. They don't have a CLUE!
It is obvious that the banks are after a monopoly of the mortgage brokerage business. They are trying the same with appraisers and will do it to the real estate community if they can. The banking business has a strong lobbyist representation in DC .and are now in bed with the ruling party.
To prevent the collapse of our businesses, we have to join forces and support the political representitives that are willing to stand up for the small business . Vote !
Great post Jason and a very good point about the government moving in on Realtors compensation right after they get through with mortgage brokers. I seriously hope that this gets shot down.
Great Post Jason. Like others here I feel that the banks, through their lobbyists (ratio of 5:1 to other PAC groups; second only to healthcare industry), are trying to control mortgage orgination by getting rid of the small local broker offices. IMHO, when they do they'll use this new power to rid themselves of local real estate offices by creating subsidary real estate offices on a national basis. I have already started seeing TV ads about "the no money down loans with 1 year 0 interest" being mandated to end this month; no matter what type of loan you get (furniture, auto, short term, etc) the consumer has to put 10% down payment. This maybe the proverbial "hand writing on the wall", only time will tell.
Great post I am sorry I got to it this late, but it reminds me that there is always someone waiting for the opportunity to limit and control what has made this country great for their own benefit. That in itself helped make this country what it is today :)
It is important to remember that the Federal Reserve is not controlled by Congress, it has the authority to act on its own and Chairman Bernanke is only required to report to Congress on what the Fed is doing. Congress can pressure the Fed all it wants to no avail until they appoint someone that will do their bidding. Perhaps it's not the big bad banks that want to control the market but certain parts of Congress. The banks understand competition to keep money flowing is a good thing for the economy and their bottom lines.
This is the 1st I had heard of this, so thanks for writing it, and thanks to ActiveRain for making it a featured post. If we've learned anything over the past few years, isn't it that more regulation and meddling by Congress always makes matters worse. I understand that they are TRYING to help, but when will we realize that less government is always best for free market capitalism, which the last time I check was in fact the system we operate under.
hussein obama has screwed US again